Streamlined Filing Compliance Procedures - extension of 2012 OVDI

IRS introduced new procedure to get in compliance with reporting of foriegn accounts and unreported interest income on those account . The new procedure is an extension of 2012 OVDI but simper in procedure also the penalty got reduced to 5 % .

Below are the details for being eligible for Streamlined Filing Comliance Procedures.

Purpose of the streamlined procedures: 

 

The streamlined filing compliance procedures described above are available to taxpayers certifying that their failure to report foreign financial assets and pay all tax due in respect of those assets did not result from willful conduct on their part.  The streamlined procedures are designed to provide to taxpayers in such situations (1) a streamlined procedure for filing amended or delinquent returns and (2) terms for resolving their tax and penalty obligations.  These procedures will be available for an indefinite period until otherwise announced.

 

Major changes to the streamlined procedures include:  (1) extension of eligibility to U.S. taxpayers residing in the United States, (2) elimination of the $1,500 tax threshold, and (3) elimination of the risk assessment process associated with the streamlined filing compliance procedure announced in 2012.

 

General eligibility for the streamlined procedures:  

 

The  streamlined filing compliance procedures are designed for only individual taxpayers, including estates of individual taxpayers.  The streamlined procedures are available to both U.S. individual taxpayers residing outside the United States and U.S. individual taxpayers residing in the United States.  Descriptions of the specific eligibility requirements for the streamlined procedures for both non-U.S. residents (the “Streamlined Foreign Offshore Procedures”) and U.S. residents (the “Streamlined Domestic Offshore Procedures”) are set forth below.Taxpayers using either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be required to certify, in accordance with the specific instructions set forth below, that the failure to report all income, pay all tax, and submit all required information returns, including FBARs (FinCEN Form 114, previously Form TD F 90-22.1), was due to non-willful conduct

 

If the IRS has initiated a civil examination of a taxpayer’s returns for any taxable year, regardless of whether the examination relates to undisclosed foreign financial assets, the taxpayer will not be eligible to use the streamlined procedures.  Taxpayers under examination may consult with their agent.  Similarly, a taxpayer under criminal investigation by IRS Criminal Investigation is also ineligible to use the streamlined procedures.  

Taxpayers eligible to use the streamlined procedures who have previously filed delinquent or amended returns in an attempt to address U.S. tax and information reporting obligations with respect to foreign financial assets (so-called “quiet disclosures” made outside of the OVDP or its predecessor programs) may still use the streamlined procedures by following the instructions set forth below.  However, any penalty assessments previously made with respect to those filings will not be abated.

All tax returns submitted under the streamlined procedures must have a valid Taxpayer Identification Number (TIN).  For U.S. citizens, resident aliens, and certain other individuals, the proper TIN is a valid Social Security Number (SSN).  For individuals who are not eligible for an SSN, an Individual Taxpayer Identification Number (ITIN) is a valid TIN.  Tax returns submitted without a valid SSN or ITIN will not be processed under the streamlined procedures.  However, for taxpayers who are ineligible for an SSN but do not have an ITIN, a submission may be made under the streamlined procedures if accompanied by a complete ITIN application.

 

General treatment under the streamlined procedures:

Tax returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will be processed like any other return submitted to the IRS.  Consequently, receipt of the returns will not be acknowledged by the IRS and the streamlined filing process will not culminate in the signing of a closing agreement with the IRS.

 

Returns submitted under either the Streamlined Foreign Offshore Procedures or the Streamlined Domestic Offshore Procedures will not be subject to IRS audit automatically, but they may be selected for audit under the existing audit selection processes applicable to any U.S. tax return and may also be subject to verification procedures in that the accuracy and completeness of submissions may be checked against information received from banks, financial advisors, and other sources.  Thus, returns submitted under the streamlined procedures may be subject to IRS examination, additional civil penalties, and even criminal liability, if appropriate.

  

Taxpayers who are concerned that their failure to report income, pay tax, and submit required information returns was due to willful conduct and who therefore seek assurances that they will not be subject to criminal liability and/or substantial monetary penalties should consider participating in the Offshore Voluntary Disclosure Program (OVDP) and should consult with their professional tax or legal advisers.

 

After a taxpayer has completed the streamlined filing compliance procedures, he or she will be expected to comply with U.S. law for all future years and file returns according to regular filing procedures.

 

 

 

 

Gifts From Foriegn Person

I frequently get a question with regards to the gifts received from Non Resident Alien ( mainly parents )by Us Citizen below are some points which needs to be considered while receiving gift :

General Rule : Foreign Gifts

In general, a foreign gift is money or other property received by a U.S. person from a foreign person that the recipient treats as a gift or bequest and excludes from gross income.  A “foreign person” is a nonresident alien individual or foreign corporation, partnership or estate.

 

The IRS may re-characterize purported gifts from foreign partnerships or foreign corporations as items of income that must be included in gross income.  Additionally, gifts from foreign trusts are subject to different rules than gifts other foreign persons.  

 

A gift to a U.S. person does not include amounts paid for qualified tuition or medical payments made on behalf of the U.S. person

Reporting Requirements

You must file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, if, during the current tax year, you treat the receipt of money or other property above certain amounts as a foreign gift or bequest.  Include on Form 3520:

• Gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate);

or

• Gifts valued at more than $13,258 (adjusted annually for inflation) from foreign corporations or foreign partnerships (including foreign persons related to the foreign corporations or foreign partnerships). 

You must aggregate gifts received from related parties.  For example, if you receive $60,000 from nonresident alien A and $50,000 from nonresident alien B, and you know or have reason to know they are related, you must report the gifts because the total is more than $100,000.  Report them in Part IV of Form 3520.  Treat gifts from foreign trusts as trust distributions you report in Part III of Form 3520.

File Form 3520 separately from your income tax return.  The due date for filing Form 3520 is the same as the due date for filing your annual income tax return, including extensions.  You file an annual Form 3520 for all reportable foreign gifts and bequests you receive during the taxable year.  See the Instructions for Form 3520 for additional information. 

 

.
Where to File Form 3520
Mail Form 3520 to the following address:
Internal Revenue Service Center
P.O. Box 409101
Ogden, Utah 84409

Penalties for Failure to File Form 3520

 

You may be penalized if you do not file your Form 3520 on time or if it is incomplete or inaccurate.  Generally, the penalty is 5% of the amount of the foreign gift for each month for which the failure to report continues (not to exceed a total of 25%). 

Tax Credit for Installing Solar Panel

As summer will be at it peaks soon all of us will be concerned about the electricity bills , installing solar panel can help us reduce the bills IRS expanded federal tax credit on Solar System installed between Jan. 1, 2009, and Dec. 31, 2016, system installed between these periods are eligible for a tax credit equal to 30% of the cost. To qualify, the system must supply electricity to a residence and meet local building codes.

That means a 5.2 kilowatt system that costs $44,200 would, in theory, earn a federal tax credit of $13,260. (This is a simplified example. Consult a tax adviser before you make final decision.)

The tax break can be applied to a solar-panel system installed at your primary residence or second home. Take the credit for the tax year the system becomes operational. Use IRS Form 5695. The credit can’t exceed the total amount owed in federal taxes for that year, but it can carry over to future years. Save receipts and certification statements.

 

If you are planning to install solar panel to reduce electricity bills then doing so before

Dec 31st 2016 will make you eligible for the 30 % credit .  

 

Child and Dependent Care Credit

 

Lot of my clients ask are they eligible for child and dependent care credit , Child and dependent care credit is different from Child tax credit and in most cases only allowed if both the spouse are working though there are some exceptions .

 

Below are some of the guidelines which can give an idea if you are eligible for it .

 

You may be able to claim the child and dependent care credit if you paid work-related expenses for the care of a qualifying individual. The credit is generally a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income. Work-related expenses qualifying for the credit are those paid for the care of a qualifying individual to enable you to work or actively look for work.

     

Expenses are paid for the care of a qualifying individual if the primary function is to assure the individual's well-being and protection. In general, amounts paid for services outside your household qualify for the credit if the care is provided for (i) a qualifying individual who is your qualifying child under age 13 or (ii) a qualifying individual who regularly spends at least 8 hours each day in your household.

     

The total expenses that may be used to calculate the credit are capped at $3,000 (for one qualifying individual) or at $6,000 (for two or more qualifying individuals). The dollar limits may differ depending on the tax year in question. The expenses qualifying for the computation of the credit must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from gross income. In general, you can exclude up to $5,000 for dependent care benefits received from your employer. Also, generally, the expenses claimed may not exceed the lesser of your earned income or your spouse’s earned income. A special rule applies if your spouse is a full-time student or incapable of self-care.

     

For purposes of the child and dependent care credit, a qualifying individual is:

1. Your dependent qualifying child who is under age 13 when the care is provided,
2. Your spouse who is physically or mentally incapable of self-care and who has the same principal place of abode as you for more than half of the year, or
3. Your dependent who is physically or mentally incapable of self-care, and who has the same principal place of abode as you for more than half of the year. For this purpose, whether an individual is your dependent is determined without regard to the individual's gross income, whether the individual files a joint return, or whether you are a dependent of another taxpayer.

An individual is physically or mentally incapable of self-care if, as a result of a physical or mental defect, the individual is incapable of caring for his or her hygiene or nutritional needs, or requires the full-time attention of another person for the individual's own safety or the safety of others.